Person:

Shavell, Steven

In The Uneasy Case for Product Liability, we maintained that the benefits of product liability are likely to be less than its costs for many products, especially widely sold ones. Our article was intended to alter the dominant view held by the judiciary and commentators that product liability has a clear justification on grounds of public policy. We argued instead that a skeptical attitude toward product liability should be adopted.

Professors John Goldberg and Benjamin Zipursky strongly criticize our article in The Easy Case for Products Liability Law: A Response to Professors Polinsky and Shavell. To a significant extent, however, they attack a straw man, for they impute to us a radical thesis – that product liability should be eliminated for all widely sold products – that we manifestly did not advance. In fact, we argued that whether product liability is undesirable depends on the particular product. Goldberg and Zipursky also ascribe to us other opinions that exaggerate what we said in our article – notably, they state that we believe that product liability has no beneficial effect on product safety for widely sold products. It is not surprising, therefore, that they are unable to support these mischaracterizations with citations to statements in our article.

The major claim that Goldberg and Zipursky develop is that our benefit-cost analysis fails to demonstrate that the case for product liability is uneasy. In our view, their critique is deficient on multiple accounts, including that it contains numerous distortions and errors, and hence does not alter our original conclusion.

In this Article we compare the benefits of product liability to its costs and conclude that the case for product liability is weak for a wide range of products. One benefit of product liability is that it can induce firms to improve product safety. Even in the absence of product liability, however, firms are often motivated by market forces to enhance product safety because their sales may fall if their products harm consumers. Moreover, products must frequently conform to safety regulations. Consequently, product liability might not be expected to exert a significant additional influence on product safety — and empirical studies of several widely sold products fail to find an effect of product liability on the frequency of product accidents. A second benefit of product liability is that it can improve consumer purchase decisions by causing product prices to increase to reflect product risks. But because of litigation costs and other factors, product liability may raise prices excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are frequently compensated by insurers for some or all of their losses. Furthermore, the payment of compensation for pain and suffering actually reduces the welfare of individuals because it effectively forces them to purchase insurance for a type of loss for which they ordinarily do not wish to be covered. Offsetting the potential benefits of product liability are its costs, which are great. Notably, the transfer of a dollar to a victim of a product accident via the liability system requires more than a dollar on average in legal expenses. Given the limited benefits and the high costs of product liability, we come to the judgment that its use is often unwarranted. This is especially likely for products for which market forces and regulation are relatively strong, which includes many widely sold products. On the other hand, the use of product liability may be desirable for products for which these factors are weak. Our generally skeptical assessment of product liability for products for which market forces and regulation are strong is in tension with the broad social endorsement of such liability.

A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.